ECB Considers Doubling Bank Reserve Requirements to Ease Central Bank Losses

The European Central Bank (ECB) is considering raising the minimum reserve requirements for commercial banks to reduce central bank losses, according to ECB President Christine Lagarde. This move could lower interest payments to lenders and ease financial pressures on the Eurosystem.

Currently, commercial banks are required to hold reserves equal to 1% of eligible deposits and certain short-term liabilities. The proposal is to double this requirement to 2%, which would require lenders to hold a larger share of deposits in non-interest-bearing reserve accounts at their national central banks.

Such a move could save the ECB and the 21 national central banks that make up the Eurosystem nearly €4 billion annually, according to Reuters calculations. The current interest payments on excess liquidity held by banks amount to close to €50 billion a year.

The proposal is also aimed at addressing mounting losses at several euro zone national central banks, particularly in countries such as Germany and the Netherlands, which stem from the ECB's large-scale monetary stimulus programmes conducted between 2015 and 2022.